See accompanying notes to unaudited condensed consolidated financial statements.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of presentation, significant concentrations and risks
(a) Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by rules and regulations of the United States Securities and Exchange Commission ("SEC"). The condensed consolidated balance sheet as of December 31, 2017 was derived from the audited consolidated financial statements of China XD Plastics Company Limited ("China XD") and subsidiaries (collectively, the "Company"). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated balance sheet of the Company as of December 31, 2017, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, included in the Company's Annual Report on Form 10-K filed with the SEC on March 15, 2018.
In the opinion of the management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the financial position as of June 30, 2018, the results of operations and cash flows for the six-month periods ended June 30, 2018 and 2017, have been made.
The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the recoverability of the carrying amounts of property, plant and equipment, the realizability of inventories, the useful lives of property, plant and equipment, the collectability of accounts receivable, the fair values of stock-based compensation awards, and the accruals for tax uncertainties and other contingencies. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.
(b) Accounting Pronouncement Adopted in 2018
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which supersedes virtually all existing revenue recognition guidance. The new standard requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. We adopted ASU 2014-09 in the first quarter 2018, using the modified retrospective transition approach, which did not have any material impact on how we recognize revenue or to our financial statements or disclosures. See below for additional information related to our recognition of revenue generated from customer contracts.
Revenue recognition
Effective January 1, 2018, we adopted the new guidance of ASC Topic 606, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition. Topic 606 requires us to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance requires us to apply the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, we satisfy a performance obligation. The adoption of this new guidance did not result in any changes to our revenue recognition practice.
ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash requires that the Statement of Cash Flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Company retrospectively adopted this guidance as of January 1, 2018, to each period presented.
(c) Significant concentrations and risks
Sales concentration
The Company sells its products primarily through approved distributors in the People's Republic of China (the "PRC"). To a lesser extent, the Company also sells its products to an overseas customer in the Republic of Korea (the "ROK"). The Company's sales are highly concentrated. Sales to distributors and end customer individually exceeded 10% of the Company's revenues for the three-month and six-month periods ended June 30, 2018 and 2017, are as follows:
|
Three-Month Period Ended June 30,
|
|
|
2018
|
|
2017
|
|
|
US$
|
|
%
|
|
US$
|
|
%
|
|
Distributor A, located in PRC
|
|
|
44,765,278
|
|
|
|
14.1
|
%
|
|
|
41,816,369
|
|
|
|
13.3
|
%
|
Distributor B, located in PRC
|
|
|
41,215,145
|
|
|
|
13.0
|
%
|
|
|
35,410,723
|
|
|
|
11.3
|
%
|
Distributor C, located in PRC
|
|
|
38,366,592
|
|
|
|
12.1
|
%
|
|
|
29,450,243
|
|
|
|
9.4
|
%
|
Direct Customer D, located in ROK
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
32,956,525
|
|
|
|
10.5
|
%
|
Total
|
|
|
124,347,015
|
|
|
|
39.2
|
%
|
|
|
139,633,860
|
|
|
|
44.5
|
%
|
|
Six-Month Period Ended June 30,
|
|
|
2018
|
|
2017
|
|
|
US$
|
|
%
|
|
US$
|
|
%
|
|
Distributor A, located in PRC
|
|
|
92,497,187
|
|
|
|
14.7
|
%
|
|
|
84,034,202
|
|
|
|
15.2
|
%
|
Distributor B, located in PRC
|
|
|
76,782,431
|
|
|
|
12.2
|
%
|
|
|
63,921,050
|
|
|
|
11.6
|
%
|
Distributor C, located in PRC
|
|
|
70,719,605
|
|
|
|
11.3
|
%
|
|
|
51,681,940
|
|
|
|
9.4
|
%
|
Total
|
|
|
239,999,223
|
|
|
|
38.2
|
%
|
|
|
199,637,192
|
|
|
|
36.2
|
%
|
The Company expects revenues from these distributors to continue to represent a substantial portion of its revenue in the future. Any factor adversely affecting the automobile industry in the PRC or the business operations of these customers will have a material effect on the Company's business, financial position and results of operations.
Purchase concentration of raw materials and equipment
The principal raw materials used for the Company's production of modified plastics products are plastic resins, such as polypropylene, ABS and nylon. The Company purchases substantially all of its raw materials through a limited number of distributors. Raw material purchases from these distributors, which individually exceeded 10% of the Company's total raw material purchases, accounted for approximately 20.5% (two distributors) and 71.1% (six distributors) for the three-month periods ended June 30, 2018 and 2017, respectively, and 10.0% (one distributor) and 60.0% (five distributors) of the Company's total raw materials purchases for the six-month periods ended June 30, 2018 and 2017, respectively of the Company's total raw material purchases, Management believes that other suppliers could provide similar raw materials on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would adversely affect the Company's business, financial position and results of operations.
Cash concentration
Cash and cash equivalents, short-term restricted cash and time deposits mentioned below maintained at banks consist of the following:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
US$
|
|
|
US$
|
|
Renminbi (“RMB”) denominated bank deposits with:
|
|
|
|
|
|
|
Financial Institutions in the PRC
|
|
|
447,226,300
|
|
|
|
605,125,974
|
|
Financial Institutions in Hong Kong Special Administrative Region ("Hong Kong SAR")
|
|
|
6,018
|
|
|
|
8,280
|
|
Financial Institutions in Dubai, United Arab Emirates ("UAE")
|
|
|
59
|
|
|
|
-
|
|
United States (“U.S.”) dollar denominated bank deposits with:
|
|
|
|
|
|
|
|
|
Financial Institution in the U.S.
|
|
|
49,813
|
|
|
|
121,756
|
|
Financial Institutions in the PRC
|
|
|
19,151
|
|
|
|
17,772
|
|
Financial Institution in Hong Kong SAR
|
|
|
1,953,736
|
|
|
|
1,895,508
|
|
Financial Institution in Macau Special Administrative Region ("Macau SAR")
|
|
|
31,866
|
|
|
|
55,206
|
|
Financial Institution in Dubai, UAE
|
|
|
38,466
|
|
|
|
879,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong dollar denominated bank deposits with:
|
|
|
|
|
|
|
|
|
Financial institution in Hong Kong SAR
|
|
|
156
|
|
|
|
131
|
|
Dirham denominated bank deposits with:
|
|
|
|
|
|
|
|
|
Financial institution in Dubai, UAE
|
|
|
1,515
|
|
|
|
11,043
|
|
The bank deposits with financial institutions in the PRC are insured by the government authority for up to RMB500,000. The bank deposits with financial institutions in the Hong Kong SAR are insured by the government authority for up to HK$500,000. The bank deposits with financial institutions in the Macau SAR are insured by the government authority for up to MOP$500,000. The bank deposits with financial institutions in the Dubai, UAE are not insured by the government authority. Total bank deposits amounted to $1,787,899 and $1,505,747 are insured as of June 30, 2018 and December 31, 2017, respectively. The Company has not experienced any losses in uninsured bank deposits and does not believe that it is exposed to any significant risks on cash held in bank accounts. To limit exposure to credit risk, the Company primarily places bank deposits with large financial institutions in the PRC, Hong Kong SAR, Macau SAR and Dubai, UAE with acceptable credit rating.
Time deposits represent certificates of deposit with initial terms of six or twelve months when purchased. As of June 30, 2018 and December 31, 2017, the Company's time deposits bear a weighted average interest rate of 1.7% and 1.3% per annum, respectively.
Cash deposits in bank that are restricted as to withdrawal or usage for up to 12 months are reported as restricted cash in the consolidated balance sheets.
Short-term bank deposits that are pledged as collateral for bills payable relating to purchases of raw materials are reported as restricted cash and amounted to US$188,205,423 and US$65,766,735 as of June 30, 2018 and December 31, 2017, respectively. Upon maturity and repayment of the bills payable, which is generally within 6 months, the cash becomes available for use by the Company. The cash will be available for use by the Company 90 days from the issuance of the letter of credit. The cash flows from the pledged bank deposits, which relate to purchases of raw materials.
Short-term bank deposits that are pledged as collateral for short-term and long-term bank borrowings are reported as restricted cash and amounted to US$73,527,189 and US$59,884,913 as of June 30, 2018 and December 31, 2017, respectively.
Short-term bank deposits that are related to government grant are reported as restricted cash and amounted to US$1,521,740 and US$1,537,935 as of June 30, 2018 and December 31, 2017, respectively. On February 11, 2017, the Company entered into a fund support agreement with the People's Government of Shunqing District, Nanchong City, Sichuan Province, pursuant to which the Company was granted RMB10 million (equivalent to US$1.5 million) to support the construction of the Sichuan plant. Such amount has been received in full in the Company's bank account with reimbursement be subject to the Government's pre-approval and will be released by the Government when the construction progress of the plant is 60%. Such balance is reported as restricted cash.
Short-term bank deposits that are pledged as collateral for foreign currency option contract are reported as restricted cash and amounted to nil and US$2,509,871 as of June 30, 2018 and December 31, 2017, respectively.
Note 2 – Accounts receivable
Accounts receivable consists of the following:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
Accounts receivable
|
|
|
308,662,914
|
|
|
|
298,909,440
|
|
Allowance for doubtful accounts
|
|
|
(39,952
|
)
|
|
|
(40,456
|
)
|
Accounts receivable, net
|
|
|
308,622,962
|
|
|
|
298,868,984
|
|
As of June 30, 2018 and December 31, 2017, the accounts receivable balances also include notes receivable in the amount of US$187,014 and US$1,181,029, respectively. As of June 30, 2018 and December 31, 2017, US$98,489,107and
US$99,526,978,
respectively, of accounts receivable are pledged for the short-term bank loans.
There was no accrual of additional provision or write-off of accounts receivable for the three-month and six-month periods ended June 30, 2018 and 2017.
The following table provides an analysis of the aging of accounts receivable as of June 30, 2018 and December 31, 2017:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
US$
|
|
|
US$
|
|
Aging:
|
|
|
|
|
|
|
– current
|
|
|
261,110,522
|
|
|
|
259,870,056
|
|
– 1-3 months past due
|
|
|
10,519,313
|
|
|
|
8,299,000
|
|
– 4-6 months past due
|
|
|
32,961,753
|
|
|
|
30,699,928
|
|
– 7-12 months past due
|
|
|
4,031,374
|
|
|
|
-
|
|
– greater than one year past due
|
|
|
39,952
|
|
|
|
40,456
|
|
Total accounts receivable
|
|
|
308,662,914
|
|
|
|
298,909,440
|
|
Note 3 – Inventories
Inventories consist of the following:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
US$
|
|
US$
|
|
|
|
|
|
|
Raw materials
|
|
|
489,942,759
|
|
|
|
405,731,330
|
|
Work in progress
|
|
|
18,592
|
|
|
|
18,876
|
|
Finished goods
|
|
|
59,820,744
|
|
|
|
15,986,476
|
|
Total inventories
|
|
|
549,782,095
|
|
|
|
421,736,682
|
|
There were no write down of inventories for the three-month and six-month periods ended June 30, 2018 and 2017.
Note 4 – Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
Receivables from Hailezi (i)
|
|
|
-
|
|
|
|
68,430,244
|
|
Value added taxes receivables (ii)
|
|
|
13,079,611
|
|
|
|
6,840,774
|
|
Advances to suppliers (iii)
|
|
|
60,816,730
|
|
|
|
62,376,588
|
|
Interest receivable (iv)
|
|
|
1,957,610
|
|
|
|
2,235,902
|
|
Others (v)
|
|
|
9,357,254
|
|
|
|
4,442,643
|
|
Total prepaid expenses and other current assets
|
|
|
85,211,205
|
|
|
|
144,326,151
|
|
(i) In March 2017, Sichuan Xinda signed a series of contracts with Harbin Hailezi Science and Technology Co., Ltd. (“Hailezi”) to purchase production equipment, and prepaid RMB1,728.9 million (equivalent to US$261.3 million ) to Hailezi, which was recognized in investing activities in the statements of cash flows. In June 2017, the two parties agreed to partially terminate the contracts and Hailezi agreed to refund the prepayment amounting to RMB1,704.9 million (equivalent to US$257.7 million) by the end of March 2018. As of March 31, 2018, Hailezi has refunded the above-mentioned prepayment to Sichuan Xinda. For details, please refer to Note 6.
(ii) Value added taxes receivables mainly represent the input taxes on purchasing equipment by Xinda Group and Sichuan Xinda, which are to be net off with output taxes. Value added taxes receivables were recognized in operating activities in condensed consolidated statements of cash flows.
(iii) Advances to suppliers are the advances to purchase raw materials as of June 30, 2018.
(iv) Interest receivable mainly represents interest income accrued from time deposits and restricted cash.
(v) Others mainly include prepaid miscellaneous service fee, staff advance and prepaid rental fee.
Note 5 – Property, plant and equipment, net
Property, plant and equipment consist of the following:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
Machinery, equipment and furniture
|
|
|
409,300,995
|
|
|
|
413,551,963
|
|
Motor vehicles
|
|
|
2,805,892
|
|
|
|
2,838,540
|
|
Workshops and buildings
|
|
|
145,183,480
|
|
|
|
146,595,501
|
|
Construction in progress
|
|
|
442,832,174
|
|
|
|
439,116,574
|
|
Total property, plant and equipment
|
|
|
1,000,122,541
|
|
|
|
1,002,102,578
|
|
Less accumulated depreciation
|
|
|
(186,347,379
|
)
|
|
|
(166,540,839
|
)
|
Property, plant and equipment, net
|
|
|
813,775,162
|
|
|
|
835,561,739
|
|
For the three-month and six-month periods ended June 30, 2018 and 2017, the Company capitalized US$617,156 and US$692,599, and US$1,260,944 and US$1,341,181 of interest costs as a component of the cost of construction in progress. Depreciation expense on property, plant and equipment was allocated to the following expense items:
|
|
|
|
|
|
|
|
|
Three-Month Period Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
US$
|
|
|
US$
|
|
Cost of revenues
|
|
|
9,310,321
|
|
|
|
8,807,659
|
|
General and administrative expenses
|
|
|
806,745
|
|
|
|
644,530
|
|
Research and development expenses
|
|
|
1,064,688
|
|
|
|
998,140
|
|
Selling expenses
|
|
|
1,400
|
|
|
|
866
|
|
Total depreciation expense
|
|
|
11,183,154
|
|
|
|
10,451,195
|
|
|
|
Six-Month Period Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
US$
|
|
|
US$
|
|
Cost of revenues
|
|
|
18,878,939
|
|
|
|
17,634,809
|
|
General and administrative expenses
|
|
|
1,601,370
|
|
|
|
1,205,848
|
|
Research and development expenses
|
|
|
1,976,328
|
|
|
|
1,989,856
|
|
Selling expenses
|
|
|
2,830
|
|
|
|
1,641
|
|
Total depreciation expense
|
|
|
22,459,467
|
|
|
|
20,832,154
|
|
Note 6 - Prepayments to equipment and construction suppliers
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
Hailezi (i)
|
|
|
416,846,181
|
|
|
|
157,358,774
|
|
Ningbo Junzuo and Ningbo Junhu (ii)
|
|
|
60,454,010
|
|
|
|
-
|
|
Shanghai Green River (iii)
|
|
|
16,366,103
|
|
|
|
16,572,489
|
|
Beijin Construction (iv)
|
|
|
7,188,955
|
|
|
|
10,001,333
|
|
Sichuan Construction (v)
|
|
|
5,966,571
|
|
|
|
6,177,647
|
|
Others
|
|
|
484,928
|
|
|
|
517,271
|
|
Total Prepayments to equipment and construction suppliers
|
|
|
507,306,748
|
|
|
|
190,627,514
|
|
(i) On September 26, 2016 and February 28, 2017, HLJ Xinda Group entered into equipment purchase contracts with Hailezi for a total consideration of RMB782.2 million (equivalent to US$118.2 million) to purchase storage facility and other equipment, which will be used for upgrading the storage system of warehouse located in Harbin, China. Pursuant to the contract with Hailezi, HLJ Xinda Group has prepaid RMB621.6 million (equivalent to US$94.0 million) as of December 31, 2017. Due to a redesign of outdoor storage facility in June 2017, HLJ Xinda Group entered into a supplementary agreement with Hailezi, which decreased the original contract amount to RMB283.7 million (equivalent to US$42.9 million). Hailezi refunded RMB369.1 million (equivalent to US$55.8 million) to HLJ Xinda Group on June 22, 2017.
As of June 30, 2018, HLJ Xinda Group has prepaid RMB252.5 million (equivalent to US$38.2 million). The prepayment and refund were recognized in investing activities in the statements of cash flows.
On July 21, 2017, HLJ Xinda Group entered into three investment agreements with the Management Committee of Harbin Economic- Technological Development Zone with respect to the industrial project for 300,000 metric tons of biological composite materials, the industrial project for upgrading existing equipment for 100,000 metric tons of engineering plastics and the industrial project for a 3D printing intelligent manufacture demonstration factory and a 3D printing display and experience cloud factory (the "HLJ Project"). In order to fulfill the agreements, HLJ Xinda Group entered into an equipment purchase contract with Hailezi to purchase production equipment in November 2017, which will be used for 100,000 metric tons of engineering plastics located in Harbin, for a consideration of RMB939.7 million (equivalent to US$142.0 million). Pursuant to the contract with Hailezi, HLJ Xinda Group has prepaid RMB920.9 million (equivalent to US$139.1 million) as of June 30, 2018.
In connection with the HLJ project, on June 21, 2018, HLJ Xinda Group entered into another equipment purchase contract with Hailezi to purchase production equipment, which will be used for 300,000 metrics tons of biological based composite material, located in Harbin, for a consideration of RMB749.8 million (equivalent to US$113.3 million). Pursuant to the contract with Hailezi, HLJ Xinda Group has prepaid RMB300.7 million (equivalent to US$45.5 million) as of June 30, 2018.
On March 17, 2017, Sichuan Xinda entered into a definitive agreement with the People's Government of Shunqing District, Nanchong City of Sichuan Province for the production of 300,000 metric tons of bio-composite materials and additive manufacturing and 20,000 metric tons of functional masterbatch, a high-end color additive process in plastics manufacturing (the "Nanchong Project"). The Nanchong Project will be located in a land area of 250 mu (equivalent to 41.2 acres), with 215 mu designated for bio-composite materials and additive manufacturing production and 35 mu to be designated for functional masterbatch production. The projected total capital expenditures for the project is approximately RMB2.5 billion (equivalent to US$377.8 million).
In connection with the Nanchong Project, Sichuan Xinda entered into equipment purchase contracts with Hailezi to purchase production equipment and testing equipment. Pursuant to the contracts with Hailezi, Sichuan Xinda has prepaid RMB1,728.9 million (equivalent to US$261.3 million) as of June 30, 2018. In 2017, in order to ensure the traceability of the product and management of supply chain, Sichuan Xinda expected to launch an integrated ERP system, which resulted in the equipment to be purchased under the original contracts with Hailezi not meeting the production requirements. Hailezi agreed to refund the prepayment in the amount of RMB1,704.9 million (equivalent to US$257.7 million) by the end of March 2018. As of December 31, 2017, Sichuan Xinda signed a supplementary agreement with Hailezi, pursuant to the agreement, Sichuan Xinda agreed to pay RMB12.4 million (equivalent to US$1.9 million) to Hailezi for the compensation of Hailezi due to the termination of the purchase contracts. As of June 30, 2018, Hailezi has refunded the above-mentioned prepayment.
In connection with the Nanchong Project, on June 21, 2018, Sichuan Xinda entered into another equipment purchase contracts with Hailezi to purchase production equipment and testing equipment for a consideration of RMB1,900 million (equivalent to US$287.2 million). Pursuant to the contracts with Hailezi, Sichuan Xinda has prepaid RMB1,260 million (equivalent to US$190.4 million) as of June 30, 2018.
(ii) In connection with the HLJ project, on June 25, 2018, HLJ Xinda Group entered into an equipment purchase contract with Ningbo Junzuo Trading Co., Ltd. ("Ningbo Junzuo") and Ningbo Junhu Trading Co., Ltd. ("Ningbo Junhu") to purchase production equipment, which will be used for 300,000 metrics tons of biological based composite material, located in Harbin, for a total consideration of RMB1,156.4 million (equivalent to US$174.8 million). Pursuant to the contract with Ningbo Junzuo and Ningbo Junhu, HLJ Xinda Group has prepaid RMB400.0 million (equivalent to US$60.4 million) as of June 30, 2018. On July 10, 2018, the Company signed supplemental contracts with Ningbo Junzuo and Ningbo Junhu to cancel the equipment purchase at the full price due to the equipment not meeting the requirements of the Company. On July 31, 2018, the Company received the full refund of RMB400.0 million (equivalent to US$60.4 million).
(iii) In December 2017, HLJ Xinda Group entered into a building purchase contract with Shanghai Caohejing Kangqiao Science & Green River Construction & Development Co., Ltd. ("Green River") for a total consideration of RMB216.6 million (equivalent to US$32.7 million), with a total area of 13,972.64 square meters. The Company is planning to use this building as the offices of the newly set up research and development center in Shanghai, which was established on December 27, 2017. As of June 30, 2018, the Company has prepaid RMB108.3 million (equivalent to US$16.4 million).
(iv) Since November 15, 2016, Sichuan Xinda entered into decoration contracts with Sichuan Beijin Construction Engineering Company Limited ("Beijin Construction") to perform indoor and outdoor decoration work for a consideration of RMB237.6 million (equivalent to US$35.9 million). Pursuant to the contract with Beijin Construction, Sichuan Xinda has prepaid RMB119.8 million (equivalent to US$18.1 million) as of June 30, 2018, in which RMB72.1 million (equivalent to US$10.9 million) was transferred to construction in progress. The prepayment was recognized in investing activities in the statements of cash flows.
(v) As of June 30, 2018, Sichuan Construction primarily consisted of payables due to Peaceful Treasure Limited ("Peaceful"). On October 20, 2016, Sichuan Xinda entered into an equipment purchase contract with Peaceful for a total consideration of RMB89.8 million (equivalent to US$13.6 million) to purchase certain production and testing equipment. The Company prepaid RMB33.9 million (equivalent to US$5.1 million) as of June 30, 2018. The equipment will be delivered when the construction of plants and buildings of the Nanchong project completed in September 2018.
Note 7 – Other non-current assets
On November 21, 2017, HLJ Xinda Group signed a purchase contract with Xinda High-Tech Co., Ltd. ("Xinda High-Tech") on 100% equity transfer of Xinda High-Tech for a total consideration of RMB105 million (US$15.9 million). Pursuant to the contract, HLJ Xinda Group has prepaid deposits of RMB101.2 million (equivalent to US$15.3 million) as of June 30, 2018, with the remaining RMB3.8 million (equivalent to US$0.6 million) to be paid within thirty days after the completion of the legal transfer. The Company is in the process of obtaining the government approval as of June 30, 2018.
Note 8 – Losses on foreign currency option contracts
On February 24, 2017, the Company entered into two foreign currency option contracts with Bank of China ("BOC"), Harbin Branch, pursuant to which the Company and BOC both have options to excise the foreign currency contracts depending on the future currency fluctuation, and the nominal values are US$5.0 million and US$10.0 million, respectively, with the defined exchange rates for settlement on March 15, 2018. The Company recognized losses on the above foreign currency option contracts amounting to US$0.5 million in the six-month period ended June 30, 2018.
Note 9 – Borrowings
The Company has credit facilities with several banks under which they draw short-term and long-term bank loans as described below.
(a) Current
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
US$
|
|
|
US$
|
|
Unsecured loans
|
|
|
322,144,303
|
|
|
|
363,319,152
|
|
Loans secured by accounts receivable
|
|
|
68,010,761
|
|
|
|
68,868,415
|
|
Loans secured by restricted cash
|
|
|
69,500,000
|
|
|
|
41,500,000
|
|
Loans secured by land use right
|
|
|
-
|
|
|
|
30,608,184
|
|
Current portion of long-term bank loans (note b)
|
|
|
175,849,800
|
|
|
|
271,101,178
|
|
Total short-term loans, including current portion of long-term bank loans
|
|
|
635,504,864
|
|
|
|
775,396,929
|
|
As of June 30, 2018 and December 31, 2017, the Company's short-term bank loans (including the current portion of long-term bank loans) bear a weighted average interest rate of 4.3% and 4.1% per annum, respectively. All short-term bank loans mature at various times within one year and contain no renewal terms.
As of June 30, 2018, the Company obtained ten loans in the total amount of RMB450.0 million (equivalent to US$68.0 million) secured by accounts receivables of RMB651.7 million (equivalent to US$98.5 million) at an annual interest rate of 4.35% from Harbin Longjiang Bank.
In February 2017, the Company obtained a one-year secured loan of US$17.0 million from Bank of China (Abu Dhabi Branch) at an annual interest rate of 2.3%. The loan was secured by restricted cash of RMB136.0 million (equivalent to US$21.6 million) in Bank of China in Harbin, China. The Company repaid the loan in February 2018.
In July 2017, the Company obtained a one-year secured loan of US$14.0 million from Bank of China (Paris Branch) at an annual interest rate of 2.5%. The loan was secured by restricted cash of RMB107.0 million (equivalent to US$16.2 million) in Bank of China in Harbin, China.
In October 2017, the Company obtained a one-year secured loan of US$5.0 million from Bank of China (Paris Branch) at an annual interest rate of 2.5%. The loan was secured by restricted cash of RMB37.5 million (equivalent to US$5.7 million) in Bank of China in Harbin, China.
In October 2017, the Company obtained a one-year secured loan of US$5.5 million from Bank of China (Paris Branch) at an annual interest rate of 2.5%. The loan was secured by restricted cash of RMB42.0 million (equivalent to US$6.3 million) in Bank of China in Harbin, China.
In November 2017, the Company obtained a three-month secured short-term loan of RMB200 million (equivalent to US$30.6 million) from Nanchong Shuntou Development Group Co., Ltd. at an annual interest rate of 4.35%. The loan was secured by one of the land use rights of RMB43.5 million (equivalent to US$6.9 million). The Company repaid the loan in January, 2018.
In May 2018, the Company obtained a three-month secured short-term loan of US$45.0 million from Standard Chartered Bank with the interest rate at 1.5% per annum over LIBOR payable on the last day of its interest period. The loan was secured by restricted cash of RMB300.0 million (equivalent to US$45.3 million) in Standard Chartered Bank in Harbin, China.
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
US$
|
|
|
US$
|
|
Secured loans
|
|
|
-
|
|
|
|
30,400,000
|
|
Unsecured loans
|
|
|
218,451,169
|
|
|
|
199,146,032
|
|
Syndicate loan facility
|
|
|
89,702,836
|
|
|
|
155,763,465
|
|
Less: current portion
|
|
|
(175,849,800
|
)
|
|
|
(271,101,178
|
)
|
Total long-term bank loans, excluding current portion
|
|
|
132,304,205
|
|
|
|
114,208,319
|
|
In October and November 2015, the Company obtained three long term unsecured loans of RMB260 million (equivalent to US$39.3 million) from Bank of China at an annual interest rate of 4.75%. In January 2016, the Company obtained a long term unsecured loan of RMB80 million (equivalent to US$12.1 million) from Bank of China at an annual interest rate of 4.75%. On December 9, 2016, the Company obtained a long term unsecured loan of RMB30 million (equivalent to US$4.5 million) from Bank of China at an annual interest rate of 4.75%. On March 23, 2017, the Company obtained a long term unsecured loan of RMB25 million (equivalent to US$3.8 million) from Bank of China at an annual interest rate of 4.75%. The Company repaid RMB10 million (equivalent to US$1.5 million) on April 28, 2017, RMB40 million (equivalent to US$6.0 million) on October 28, 2017 and RMB25 million (equivalent to US$3.8 million) on April 28, 2018. RMB100 million (equivalent to US$15.1 million), RMB25 million (equivalent to US$3.8 million), RMB100 million (equivalent to US$15.1 million), RMB20 million (equivalent to US$3.1 million), and RMB75 million (equivalent to US$11.3 million) will be repaid on October 28, 2018, April 28, 2019, October 28, 2019, April 28, 2020 and October 28, 2020, respectively.
On May 13, 2016, the Company obtained two two-year secured loans of US$14.3 million from China Construction Bank (Dubai) at an interest of three-month LIBOR (2.3118% as of March 31, 2018) plus 1.6%. On May 17, 2016, the Company obtained two two-year secured loans of US$12.3 million from China Construction Bank (Dubai) at an interest of three-month LIBOR (2.3118% as of March 31, 2018) plus 1.6%. On May 22, 2016, the Company obtained a two-year secured loan of US$3.8 million from China Construction Bank (Dubai) at an interest of three-month LIBOR (2.3118% as of March 31, 2018) plus 1.6%. The interest rate is reset every three months. These loans are secured by restricted cash of RMB68.8 million (equivalent to US$10.9 million). All of these loans were repaid in April 2018.
On August 22, 2016, Xinda Holding (HK) Company Limited ("Xinda Holding (HK)") a wholly owned subsidiary of the Company, entered into a facility agreement for a loan facility in an aggregate amount of US$180 million with a consortium of banks and financial institutions led by Standard Chartered Bank (Hong Kong) Limited. The Company paid arrangement fees and legal fees in the amount of US$6.77 million of which the unamortized balance is US$0.3 million as of June 30, 2018 for the related loan. Debt issuance costs are presented on the consolidated balance sheets as a direct deduction from the carrying amount of the loan and amortized to interest expense using the effective interest rate of 6.205% as of June 30, 2018. The Company repaid US$22.5 million, US$22.5 million and US$45.0 million on November 22, 2017, February 22, 2018 and May 22, 2018, respectively. US$90.0 million of the principal amount will be repaid on August 22, 2018.
During 2017, the Company obtained four long-term unsecured loans of RMB430 million (equivalent to US$65.0 million) from Nanchong Shuntou Development Group Co., Ltd. at an annual interest rate of 4.35%. In accordance with the renewal agreements on June 28, 2017, the repayment terms of the four loans were extended and the loans will be due on December 31, 2018.
On December 1, 2017, the Company obtained a seven-year unsecured loan of RMB526.3 million (equivalent to US$79.5 million) from Longjiang Bank, Harbin Branch at an annual interest rate of 4.9%. The Company borrowed another long-term loan in amount of RMB169.1 million (equivalent to US$25.6 million) in January 2018 at an annual interest rate of 4.9%. RMB15 million (equivalent to US$2.3 million), RMB20 million (equivalent to US$3.0 million), RMB35 million (equivalent to US$5.3 million), RMB35 million (equivalent to US$5.3 million), RMB70 million (equivalent to US$10.6 million), RMB70 million (equivalent to US$10.6 million) and RMB450.4 million (equivalent to US$68.0 million) will be repaid on June 30, 2019, December 30, 2019, June 30, 2020, December 30, 2020, June 30, 2021, December 30, 2021, and after 2021, respectively.
As of June 30, 2018, the Company had total lines of credit of RMB7,667.4 million (US$1,158.8 million) including unused lines of credit of RMB2,502.5 million (US$378.2 million) with remaining terms less than 12 months and RMB84.6 million (US$12.8 million) with remaining terms beyond 12 months.
Certain lines of credit contain financial covenants such as total stockholders' equity, debt asset ratio, contingent liability ratio and net profit. As of June 30, 2018, the Company has met these financial covenants.
Maturities on long-term bank loans (including current portion) are as follows:
|
|
June 30, 2018
|
|
|
|
US$
|
|
2018
|
|
|
169,804,400
|
|
2019
|
|
|
24,181,604
|
|
2020
|
|
|
24,937,279
|
|
2021
|
|
|
21,158,903
|
|
After 2021
|
|
|
68,071,819
|
|
Total
|
|
|
308,154,005
|
|
Note 10 – Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
US$
|
|
|
US$
|
|
Payables for purchase of property, plant and equipment
|
|
|
56,662,256
|
|
|
|
98,791,115
|
|
Accrued freight expenses
|
|
|
13,937,138
|
|
|
|
10,491,635
|
|
Accrued interest expenses
|
|
|
6,193,430
|
|
|
|
3,997,036
|
|
Advance from customers (i)
|
|
|
52,038,837
|
|
|
|
8,843,649
|
|
Non-income tax payables
|
|
|
4,088,550
|
|
|
|
4,002,092
|
|
Others (ii)
|
|
|
20,435,526
|
|
|
|
12,479,982
|
|
Total accrued expenses and other current liabilities
|
|
|
153,355,737
|
|
|
|
138,605,509
|
|
(i) Advance from customers mainly represents the advance received from three customers in the PRC for the raw material purchases as of June 30, 2018.
(ii) Others mainly represent accrued payroll and employee benefits, accrued audit and consulting fees, electricity fee and other accrued miscellaneous operating expenses.
Note 11 – Related Party Transactions
On July 14, 2018, Xinda Holding (HK) entered into a subscription intent agreement with Changmu Investment (Beijing) Company Limited (“Changmu”), a company wholly controlled by Mr. Tiexin Han, the son of Mr. Jie Han, the Registrant' Chief Executive Officer and Chairman of the Company. Pursuant to the terms of the agreement, HLJ Xinda Group received USD75.6 million (RMB500 million) from Changmu on June 29, 2018 which was injected into HLJ Xinda Group in order to subscribe newly authorized registered capital of HLJ Xinda Group (the "Subscription"), subject to further negotiations among the parties of one or more definitive agreements governing the terms of the Subscription, including the valuation of HLJ Xinda Group. An agreement between Xinda Holding (HK) and Changmu was subsequently entered on August 8, 2018. Subject to final independent evaluation, Changmu and Xinda Holding (HK) are estimated to own 25% and 75% equity interest respectively in HLJ Xinda Group with the balance of amounts due to a related party in USD75.6 million transferred to non-controlling interest and additional paid in capital accordingly.
The related party transactions are summarized as follows:
|
Three-Month Period Ended June 30,
|
|
Six-Month Period Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
US$
|
|
US$
|
|
US$
|
|
US$
|
|
Transactions with a related party:
|
|
|
|
|
|
|
|
|
Investment received in advance from Changmu
|
|
|
75,567,512
|
|
|
|
-
|
|
|
|
75,567,512
|
|
|
|
-
|
|
The related party balances are summarized as follows:
|
June 30,
2018
|
|
December 31,
2017
|
|
|
US$
|
|
US$
|
|
Amounts due to a related party:
|
|
|
|
|
|
|
Investment received in advance from Changmu
|
|
|
75,567,512
|
|
|
|
-
|
|
Note 12 – Income tax
Pursuant to an approval from the local tax authority in July 2013, Sichuan Xinda, a subsidiary of China XD, became a qualified enterprise located in the western region of the PRC, which entitled it to a preferential income tax rate of 15% from January 1, 2013 to December 31, 2020. Under the current laws of Dubai, Dubai Xinda, a subsidiary of China XD, is exempted from income taxes.
The effective income tax rates for the six-month periods ended June 30, 2018 and 2017 were 20.2% and 16.8%, respectively. The effective income tax rate increased from 16.8% for the six-month period ended June 30, 2017 to 20.2% for the six-month period ended June 30, 2018, primarily due to the increase of continuous operating losses occurred in overseas subsidiaries such as Dubai Xinda and Xinda Holding (HK), the decrease of 50% additional deduction of R&D expense and partially offset by the increase of Sichuan Xinda’s profit before tax (“PBT”) percentage within the consolidating entities. The effective income tax rate for the six-month period ended June 30, 2018 differs from the PRC statutory income tax rate of 25% primarily due to Sichuan Xinda's preferential income tax rate, the reversal of the unrecognized tax benefits accrued in year 2012 and 50% additional deduction of R&D expenses of the major PRC operating entities.
US$2,898,304 previously unrecognized tax benefits accrued in year 2012 and the related accrued interest amounting to US$ 2,721,753 were reversed due to the expiration of five-year tax assessment period on May 31, 2018. As of June 30, 2018, the unrecognized tax benefits were US$35,306,965 and the interest relating to unrecognized tax benefits was US$9,973,520, of which the unrecognized tax benefits in year 2013 amounting to US$3,819,016 and related accrued interest amounting to US$2,721,430 were classified as current liabilities as the five-year tax assessment period will expire on May 31, 2019. No penalties expense related to unrecognized tax benefits were recorded. The Company is currently unable to provide an estimate of a range of the total amount of unrecognized tax benefits that is reasonably possible to change significantly within the next twelve months.
Note 13 – Deferred Income
On January 26, 2015, the Company entered into a memorandum and a fund support agreement (the "Agreement") with the People's Government of Shunqing District, Nanchong City, Sichuan Province ("Shunqing Government") pursuant to which Shunqing Government, through its investment vehicle, extended to the Company RMB350 million (equivalent to US$52.9 million) to support the construction of the Sichuan plant, which has been received in full in the form of government repayment of bank loans on behalf of the Company.
In addition, the Company has received RMB332.2 million (equivalent to US$50.2 million) from Shunqing Government and RMB6.4 million (equivalent to US$1.0 million) from Ministry of Finance of the People's Republic of China to support the construction and RMB2.2 million (equivalent to US$0.3 million) special funds of ministerial key research projects from Ministry of Science and Technology of PRC as of June 30, 2018.
The Company has also received RMB45 million (equivalent to US$6.8 million) from Harbin Bureau of Finance for Biomedical composites project as of June 30, 2018.
Since the funding is related to the construction of long-term assets, the amounts were recognized as government grant, which is included in deferred income on the condensed consolidated balance sheets, and to be recognized as other income in the condensed consolidated statements of comprehensive income over the periods and in the proportions in which depreciation expense on the long-term assets is recognized.
The Sichuan factory has been operational since July 2016. A cumulative RMB54.9 million (equivalent to US$8.3 million) government grants have been amortized as other income proportionate to the depreciation of the related assets, of which RMB15.6 million (equivalent to US$2.5 million) was amortized in the six-month period ended June 30, 2018.
The Company also received RMB36.0 million (equivalent to US$5.4 million) from Shunqing Government with respect to interest subsidy for bank loans. A cumulative RMB16.4 million (equivalent to US$2.6 million) government grants have been amortized as other income in line with the amount of related loan interest paid of which no amortization in the six-month period ended June 30, 2018.
Note 14 – Other non-current liabilities
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
US$
|
|
|
US$
|
|
Income tax payable-noncurrent (i)
|
|
|
98,350,762
|
|
|
|
98,630,817
|
|
Deferred income tax liabilities
|
|
|
8,089,356
|
|
|
|
9,267,501
|
|
Total other non-current liabilities
|
|
|
106,440,118
|
|
|
|
107,898,318
|
|
(i) Income tax payable-noncurrent represents the repatriation tax, the accumulative balance of unrecognized tax benefits since 2013 and related accrued interest. According to the Tax Cuts and Jobs Act enacted on December 22, 2017, the management estimated the amount of U.S. tax corporate income tax is US$70,965,148 based on the deemed repatriation to the United States of accumulated earnings mandated by the U.S. tax reform, US$11,354,425 of which will be paid in 2018 and was classified as current liabilities.
Note 15 – Stockholders' equity
The changes of each caption of stockholders' equity for the six-month period ended June 30, 2018 are as follows:
|
|
Series B
Preferred Stock
|
|
|
Common Stock
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
Other
|
|
|
Total
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Treasury Stock
|
|
|
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Comprehensive
Loss
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
US$
|
|
|
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2018
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
49,727,731
|
|
|
|
4,975
|
|
|
|
(92,694
|
)
|
|
|
83,159,893
|
|
|
|
648,790,469
|
|
|
|
(19,084,743
|
)
|
|
|
712,778,000
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46,323,979
|
|
|
|
-
|
|
|
|
46,323,979
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,644,600
|
)
|
|
|
(9,644,600
|
)
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,630,065
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,630,065
|
|
Vesting of non-vested shares
|
|
|
-
|
|
|
|
-
|
|
|
|
560,000
|
|
|
|
56
|
|
|
|
-
|
|
|
|
(56
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance as of June 30, 2018
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
50,287,731
|
|
|
|
5,031
|
|
|
|
(92,694
|
)
|
|
|
85,789,902
|
|
|
|
695,114,448
|
|
|
|
(28,729,343
|
)
|
|
|
752,087,444
|
|
Note 16 – Stock based compensation
Non-vested shares
A summary of the non-vested shares activity for the six-month ended June 30, 2018 is as follows:
|
|
Number of Nonvested
Shares
|
|
|
Weighted Average
Grant date Fair Value
|
|
|
|
|
|
|
US$
|
|
Outstanding as of December 31, 2017
|
|
|
161,110
|
|
|
|
7.49
|
|
Granted
|
|
|
560,000
|
|
|
|
4.40
|
|
Vested
|
|
|
(560,000
|
)
|
|
|
4.40
|
|
Outstanding as of June 30, 2018
|
|
|
161,110
|
|
|
|
7.49
|
|
The Company recognized US$2,547,273 and US$181,688 of compensation expense in general and administrative expenses relating to non-vested shares for the three-month periods ended June 30, 2018 and 2017, respectively, and US$2,630,065 and US$347,046 for the six-month periods ended June 30, 2018 and 2017, respectively. As of June 30, 2018, there was US$41,734 of total unrecognized compensation cost relating to non-vested shares, which is to be recognized over a weighted average period of 0.10 years.
Note 17 - Earnings per share
Basic and diluted earnings per share are calculated as follows:
|
|
Three-Month Period Ended June 30,
|
|
|
Six-Month Period Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Net income
|
|
|
27,224,078
|
|
|
|
28,063,992
|
|
|
|
46,323,979
|
|
|
|
37,964,981
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings allocated to participating Series D convertible preferred stocks
|
|
|
(6,555,197
|
)
|
|
|
(6,814,870
|
)
|
|
|
(11,177,620
|
)
|
|
|
(9,219,142
|
)
|
Earnings allocated to participating nonvested shares
|
|
|
(66,007
|
)
|
|
|
(160,703
|
)
|
|
|
(112,552
|
)
|
|
|
(217,469
|
)
|
Net income for basic and diluted earnings per share
|
|
|
20,602,874
|
|
|
|
21,088,419
|
|
|
|
35,033,807
|
|
|
|
28,528,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted earnings per share
|
|
|
50,287,731
|
|
|
|
49,511,541
|
|
|
|
50,148,504
|
|
|
|
49,511,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
0.41
|
|
|
|
0.43
|
|
|
|
0.70
|
|
|
|
0.58
|
|
The following table summarizes potentially dilutive securities excluded from the calculation of diluted earnings per share for the three-month periods and six-month periods ended June 30, 2018 and 2017 because their effects are anti-dilutive:
|
Three-Month Period Ended June 30,
|
|
Six-Month Period Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Shares issuable upon conversion of Series D convertible preferred stocks
|
|
|
16,000,000
|
|
|
|
16,000,000
|
|
|
|
16,000,000
|
|
|
|
16,000,000
|
|
Note 18 - Commitments and contingencies
(1) Lease commitments
Future minimum lease payments under non-cancellable operating leases agreements as of June 30, 2018 were as follows.
|
|
US$
|
|
Period from July 1, 2018 to December 31, 2018
|
|
|
1,396,237
|
|
Years ending December 31,
|
|
|
|
|
2019
|
|
|
1,650,201
|
|
2020
|
|
|
1,544,785
|
|
2021
|
|
|
1,469,489
|
|
2022
|
|
|
1,430,060
|
|
2023 and thereafter
|
|
|
22,464,854
|
|
Rental expenses incurred for operating leases of plant and equipment and office spaces were US$802,650 and US$894,643, and for the three-month periods ended June 30, 2018 and 2017, respectively, and US$1,384,004 and US$1,554,993 for the six-month periods ended June 30, 2018 and 2017, respectively. There are no step rent provisions, escalation clauses, capital improvement funding requirements, other lease concessions or contingent rent in the lease agreements. The Company has no legal or contractual asset retirement obligations at the end of leases. The Company's leases do not contain any contingent rent payments terms.
(2) Sichuan plant construction and equipment purchase
On March 8, 2013, Xinda Holding (HK) entered into an investment agreement with Shunqing Government, pursuant to which Xinda Holding (HK) will invest RMB1,800 million (equivalent to US$272.0 million) in property, plant and equipment and approximately RMB600 million (equivalent to US$90.7 million) in working capital, for the construction of Sichuan plant. As of June 30, 2018, the Company has a remaining commitment of RMB54.8 million (equivalent to US$8.3 million) mainly for facility construction.
In September 2016, Sichuan Xinda entered into equipment purchase contracts with Hailezi for a consideration of RMB17.0 million (equivalent to US$2.6 million) to purchase storage facility and testing equipment. Afterward, Sichuan Xinda cancelled two contracts with Hailezi for a consideration of RMB1.6 million (equivalent to US$0.2 million). As of June 30, 2018, Sichuan Xinda prepaid RMB6.0 million (equivalent to US$0.9 million) and has a remaining commitment of RMB9.4 million (equivalent to US$1.5 million).
On October 20, 2016, Sichuan Xinda entered into an equipment
purchase contract with Peaceful for a total consideration of RMB89.8 million (equivalent to US$13.6 million) to purchase certain production and testing equipment. As of June 30, 2018, the Company has a commitment of
RMB55.9 million (equivalent to
US$8.5 million).
On November 15, 2016, Sichuan Xinda entered into decoration contract with Beijin Construction to perform indoor and outdoor decoration work for a consideration of RMB237.6 million (equivalent to US$35.9 million). On February 20, 2017, Sichuan Xinda entered into another decoration contract with Beijin Construction to perform outdoor decoration work for a consideration of RMB2.9 million (equivalent to US$0.4 million). On June 10, 2017, Sichuan Xinda entered into another decoration contract with Beijin Construction to perform ground decoration work for a consideration of RMB23.8 million (equivalent to US$3.6 million). As of June 30, 2018, Sichuan Xinda prepaid RMB119.8 million (equivalent to US$18.1 million) of which RMB72.1 million (equivalent to US$10.9 million) was transferred to construction in progress and has a remaining commitment of RMB144.5 million (equivalent to US$21.8 million).
In connection with the Nanchong Project mentioned in Note 6 (i), Sichuan Xinda entered into equipment purchase contracts with Hailezi for a consideration of RMB2,242.8 million (equivalent to US$339.0 million) to purchase production equipment and testing equipment in March 2017. By the end of June 2017, Sichuan Xinda expected to launch an integrated ERP system, which resulted in the equipment to be purchased under the original contracts with Hailezi not meeting the production requirements. Thus the original contracts have been terminated with the amount of RMB2,222.9 million (equivalent to US$336.0 million), and Hailezi agreed to refund the prepayment in the amount of RMB1,704.9 million (equivalent to US$257.7 million) by the end of March 2018, out of the total prepayment made by Sichuan Xinda of RMB1,722.9 million (equivalent to US$260.4 million). As of June 30, 2018, Hailezi has refunded the prepayment in the amount of RMB1,704.9 million (equivalent to US$257.7 million). As of June 30, 2018, Sichuan Xinda prepaid RMB18.0 million (equivalent to US$2.7 million) and has a remaining commitment of RMB1.9 million (equivalent to US$0.3 million).
In connection with the Nanchong Project, on June 21, 2018, Sichuan Xinda entered into another equipment purchase contracts with Hailezi to purchase production equipment and testing equipment for a consideration of RMB1,900 million (equivalent to US$287.2 million). Pursuant to the contracts with Hailezi, Sichuan Xinda have prepaid RMB1,260 million (equivalent to US$190.4 million) at the end of June 2018, and has a remaining commitment of RMB640 million (equivalent to US$96.8 million).
(3) Heilongjiang plant construction and equipment purchase
In connection with the equipment purchase contracts with Hailezi signed on September 26, 2016 and February 28, 2017 mentioned in Note 6 (i), HLJ Xinda Group has a remaining commitment of RMB31.2 million (equivalent to US$4.7 million) as of June 30, 2018.
In connection with the "HLJ Project" mentioned in Note 6 (i), pursuant to the three investment agreements, the project total capital expenditure will be RMB4,015.0 million (equivalent to be US$606.8 million), among which the investment in fixed assets shall be no less than RMB3,295.0 million (equivalent to US$498.0 million) in total. Pursuant to the contracts with Hailezi signed in November 2017 mentioned in Note 6 (i), HLJ Xinda Group has a remaining commitment of RMB18.8 million (equivalent to US$2.9 million) as of June 30, 2018.
In connection with the HLJ project, on June 21, 2018, HLJ Xinda Group entered into another equipment purchase contract with Hailezi to purchase production equipment, which will be used for 300,000 metrics tons of biological based composite material, located in Harbin, for a consideration of RMB749.8 million (equivalent to US$113.3 million). Pursuant to the contract with Hailezi, HLJ Xinda Group has prepaid RMB300.7 million (equivalent to US$45.5 million) as of June 30, 2018, and has remaining commitment of RMB449.1 million (equivalent to US$67.8 million).
In connection with the HLJ project, on June 25, 2018, HLJ Xinda Group entered into equipment purchase contracts with Ningbo Junzuo and Ningbo Junhu to purchase production equipment, which will be used for 300,000 metrics tons of biological based composite material, located in Harbin, for a total consideration of RMB1,156.4 million (equivalent to USD174.8 million). Pursuant to the contract with Ningbo Junzuo and Ningbo Junhu, HLJ Xinda Group has prepaid RMB400.0 million (equivalent to USD60.4 million) as of June 30, 2018 and has a remaining commitment of RMB756.4 million (equivalent to US$114.4 million). On July 10, 2018, the Company signed supplemental contracts with Ningbo Junzuo and Ningbo Junhu to cancel the equipment purchase at the full price due to the equipment not meeting the requirements of the Company. On July 31, 2018, the Company received the full refund of RMB400.0 million (equivalent to US$60.4 million).
(4) Dubai plant construction and equipment
On April 28, 2015, Dubai Xinda entered into a warehouse construction contract with Falcon Red Eye Contracting Co. L.L.C. for a total consideration of AED6.7 million (equivalent to US$1.8 million). As of June 30, 2018, the Company has a remaining commitment of AED3.3 million (equivalent to US$0.6 million).
(5) Xinda CI (Beijing) office building decoration
On March 30, 2017, Xinda CI (Beijing) Investment Holding Co., Ltd. ("Xinda Beijing Investment") entered into a decoration contract with Beijing Fangyuan Decoration Engineering Co., Ltd. for a total consideration of RMB5.8 million (equivalent to US$0.9 million) to decorate office building. As of June 30, 2018, the decoration work in the amount of RMB2.0 million (equivalent to US$0.3 million) was recorded in construction in progress. As of June 30, 2018, the Company has a remaining commitment of RMB3.8 million (equivalent to US$0.6 million).
On June 9, 2017, Xinda CI (Beijing) entered into a decoration contract with Beijing Zhonghongwufang Stone Co., Ltd for a total consideration of RMB1.2 million (equivalent to US$0.2 million) to decorate office building. As of June 30, 2018, the decoration work in the amount of RMB0.6 million (equivalent to US$0.1 million) was recorded in construction in progress. As of June 30, 2018, the Company has a remaining commitment of RMB0.6 million (equivalent to US$0.1 million).
(6) Xinda Shanghai Research & Development office building
In connection with the building purchase contract mentioned in Note 6 (ii), HLJ Xinda Group has a remaining commitment of RMB108.3 million (equivalent to US$16.3 million) as of June 30, 2018.